Ezdan Holding Group Q.P.S.C. (ERES) Earnings Call Transcript & Summary

Good day, and welcome to the Ezdan Holding Group Q2 2022 Results Conference Call. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Roy Thomas.

Hello, everyone. This is Roy Thomas from QNB Financial Services. I want to welcome everyone to Ezdan Holding Group's second quarter 2022 financial results conference call. On this call from Ezdan we have, Tamer Fouad, the Group's Chief Financial Officer; and Taha Moursi, the Financial Controller and IR Officer. We will conduct this conference call with management first to begin the company's results followed by a Q&A. I will turn the call now over to Taha Moursi.

Good afternoon, everyone. Thanks Roy for your introduction. First, we will start with a disclaimer that some of the information discussed here might contain projections or other forward-looking statements regarding future events or future financial performance of Ezdan Holding Group. These forward-looking statements include all matters that are not historical facts. Any forward-looking statement speaks only as of when it is made. Ezdan undertakes no obligation to publicly update or publicly revise any forward-looking statement, whether as a result of new information, future events or otherwise. We will discuss today the financial performance and financial position for Ezdan for second quarter 2022. Investor presentation for the conference call is now available at Ezdan website, www.ezdanholding.qa under the Investor Relations section. First, we will start with financial performance of the Group. Ezdan achieved a net profit attributable to owners of around QAR 260 million compared to QAR 172 million. Profit and loss statement contains the changes in the following main factors. Rental income increased by around 25%. Investment income decreased by 57%. Other operating revenue increased by around 18%. Operating expenses increased by around 25%. Finance costs increased by QAR 6 million. ForEx loss decreased by around QAR 51 million. For 2022, main ratios for financial performance was as following. Percent of operating expense compared to rental income was 20% for 2022 and 2021. Total gross margin was 80% for both years. Net profit margin was 29% compared to 24%. Earnings per share was QAR 1 compared to QAR 0.65. Regarding components of profit or loss statement, Ezdan recognized the rental income of QAR 752 million compared to QAR 600 million with an increase of QAR 151 million, representing around 25%. Rental revenue from Residential and Commercial segment, representing about 88% from total rental revenue of Ezdan, increased by around 27% with QAR 143 million compared to last year. And regarding the occupancy rate, average occupancy rate was around 93% compared to 83% in 2021. Rental revenue from Hotel segment representing around 7% from total rental revenue of Ezdan increased by around only QAR 1 million. Average occupancy rate for Hotel sectors was around 40% compared to 47%. Rental revenue from Malls segment, representing 5% from total rental revenue of Ezdan, increased by around QAR 7 million. Average occupancy rate in Malls was 81% compared to 75%. For other operating revenue, Ezdan achieved other operating revenue of QAR 52 million compared to QAR 44 million with an increase of QAR 8 million, representing around 18%. Other operating revenue from Residential segment increased by around QAR 7 million. Other operating revenue from Hotel segment decreased by around QAR 2 million. And for Malls, it has decreased by QAR 1 million. Regarding operating expenses, operating expenses incurred for second half of 2022 -- quarter 2 2022 were QAR 159 million compared to QAR 127 million with an increase of QAR 32 million, representing 25%. The main components of operating expenses were staff benefits of QAR 40 million compared to QAR 31 million. Electricity and water charges was QAR 46 million compared to QAR 40 million. Maintenance expense was QAR 18 million compared to QAR 14 million. Operating expenses for Residential segment increased by QAR 26 million, for Hotels increased by QAR 4 million and for Malls increased by QAR 2 million. Operating profit from main operations was around QAR 644 million compared to QAR 517 million with a gross margin from main operations of 80% in both years. Operating profit from Residential and Commercial segment was QAR 576 million compared to QAR 450 million with gross margin of 83% in both years. Operating profit from the Hotel segment was QAR 59 million compared to QAR 40 million with a gross margin of 58% in 2022 compared to 63% in 2021. Operating profit from Malls segment was QAR 29 million compared to QAR 25 million with a gross margin of 68% compared to 67%. Investment income, representing mainly in dividend income and the shares of results of equity accounting investees was QAR 64 million compared to QAR 101 million with a decrease of QAR 37 million. The dividend income has increased from QAR 70 million to QAR 86 million. And on the other side, share of results has decreased by QAR 54 million. General and admin expenses have increased by QAR 5 million, which was mainly due to increase in professional and legal fees, increased by around QAR 2 million and other categories of G&A expenses have increased in total by around QAR 3 million. Regarding the finance cost, finance cost was around QAR 363 million compared to QAR 357 million with an increase of QAR 6 million. Now we will move to the financial position of the Group as at 30 June, 2022. As at 30 June, 2022, the Group has total assets of QAR 49.8 billion with a decrease of QAR 367 million compared to December 2021. Total liabilities were around QAR 17 billion with an increase of QAR 916 million compared to December 2021 and total equity including non-controlling interest was around QAR 32.8 billion with an increase of QAR 549 million compared to December 2021. Cash and the bank balances have decreased by around QAR 785 million, representing 72% resulting mainly from settlement of Sukuk during the period. Investment properties have increased from QAR 44.8 billion to QAR 45 billion with an increase of QAR 202 million, representing mainly capitalized expenditures during the period. Equity investment has been increased by QAR 281 million with the balance of QAR 3 billion as at 30 June, 2022 compared to QAR 2.7 billion as at 31 December, 2021. Such increase was mainly due to changes in market value equity investments. Investments in equity accounted investees and the joint venture have decreased by QAR 62 million as a result of offset between dividends received by QAR 59 million and incurred loss from share results by QAR 23 million. Due to related parties increased by QAR 980 million. Movement in balances with related parties representing mainly and development of quarters charged by main contractor and related party SAK Holding was around QAR 153 million and are borrowing directly or indirectly of QAR 824 million through other related parties. Islamic borrowings and Sukuk have decreased by QAR 1.9 billion. That decrease results mainly from settlement of Sukuk during the period was QAR 1.8 billion. Retained earnings have increased by QAR 260 million, which represents a net profit for Q2 2022. The valuation reserve has been increased by QAR 282 million as a result of increase in fair value of equity investments. The share capital of Ezdan was QAR 26.5 billion as at 30 June, 2022. Regarding cash flows, net cash flow from operating activities were QAR 547 million compared to QAR 478 million. Net cash flows from investing activities was QAR 68 million compared to QAR 92 million. Net cash flow used in financing activities for 2022 were QAR 1.4 billion compared to QAR 242 million for 2021. Operator you can start session for questions now.

[Operator Instructions] We will now take our first question from [ Nikhil Patani ] from CBSF.

Just wanted to know your views in terms of given that your residential and commercial properties form a very huge portion in terms of assets and operating profits. And going forward, post FIFA, what exactly you see there? Yes, you are in the mid-segment, but still, do you see a fall in terms of your rents? And what are the likely -- are any other challenges? And what other remittal action that you could be taking in case which you foresee it could happen? I mean, are you trying to improve by increasing other exposures in other places like hotels, malls and all that in terms of units? And so just wanted to see your outlook post FIFA?